Looking for a silver lining in all the black clouds that have rolled over Wall Street in the past week?
Well, keep looking.
In the wake of this week's technology stock sell-off, analysts and investors are scrambling for clues as to whether this is the beginning of the end for skyrocketing tech issues or just a slight bump along the information superhighway.
The broader markets on Friday picked up where they left off, with the Dow losing 91.85 points to 7847.03 and the NASDAQ dropping 32.81 points to 1666.85.
Most analysts said this week's collapse shows that investors are no longer enamored of technology companies that only meet earnings expectations. Compaq Computer Corp., which beat Wall Street estimates in the past three quarters, merely met expectations in the third quarter. As a result, the stock lost $8 per share in three trading days.
"These guys are learning that meeting their numbers isn't good enough for investors anymore, especially when they're trading at such high multiples," said Louis Mazzucchelli, an analyst at Gerard Klauer Mattison. "Right now, the people who have been looking for any excuse to get off the merry-go-round are finally getting their chance."
After unprecedented growth in the past two years, the tech-laden NASDAQ offered a buffet of stocks that continued to appreciate beyond anyone's expectations. In July and August, both Compaq and Dell Computer Corp. shares appreciated by more than 40 percent in less than six weeks.
At least for now, those salad days appear to be over.
"Everyone knew it was simply a matter of time before there would be a correction, and it's arrived," said Stephen Smith, an analyst at PaineWebber. "And there's more bad news to come. Fundamentally the industry is healthy, with revenues and unit sales increasing. But the expectations were just too high."
From a macroeconomic perspective, this week's news couldn't have been much better. The consumer price index grew only 0.2 percent in September, less than the 0.3 percent most economists had expected. Inflation seems to be in check. The Federal Reserve has given no indication that interest rates will be raised, so why are tech stocks taking such a shellacking?
"It's relative," said Todd Bakar, an analyst at Hambrecht & Quist. "These same stocks had a good run for a long time and their valuations are at the high end. We're seeing a resettlement. Things are going to be a bit choppy for the next four to six weeks until we get an idea of how the fourth quarter looks."
Some bellwether technology firms have yet to report their results.
Microsoft Corp. and IBM will report on Monday. First Call expects IBM to return a profit of $1.36 per share, up from $1.23 in the same quarter a year ago. Microsoft Corp. is expected to post a profit of 70 cents per share, up from 47 cents in that quarter last year.
So if these leading companies can meet or beat expectations, will the bulls return?
"No, I really don't think it will matter," Mazzucchelli said. "Even if they blow out the numbers, I don't think it'll be enough to turn it around. One or two or even three companies won't be enough to change the mindset we've seen lately."
Smith said it was important to remember that investors who raked in enormous gains in the past year have little motivation to ride out the storm this time around.
"Even if technology stocks do make another run, there's less upside potential," he said. "They are trading at or above most target prices. What's to gain when they've seen a string of disappointing earnings this week?"
A little good news Monday from Microsoft and IBM might revive the technology sector temporarily, but maybe that's not the best scenario either.
"We've seen an overheated market awash in this buying mentality," Mazzucchelli said. "Buying at almost any cost. Maybe this correction will be good for everyone. If we see more emphasis on quality and less on hype, it could be a refreshing and healthy change."